Malaysian firm proposes alternate path for MAS

19 November, 2014

SOURCE: Flight Dashboard

BY: Mavis Toh

Tokyo

A newly set up financial advisory firm has put in a formal proposal to work with majority shareholder Khazanah Nasional to turn around ailing Malaysia Airlines (MAS), with an emphasis on taking control of the airline's leasing arm.

Jentayu Danaraksa, set up three months ago, and chaired by former MAS managing director Abdul Aziz, submitted a formal proposal to the Malaysian prime minister earlier this month. The firm consists of a team of about 10 Malaysian professionals who have experience in aviation and investment banking.

One of its directors, Shukor Yusof, tells Flightglobal that the plan is essentially for Jentayu to acquire a majority stake in leasing firm Penerbangan Malaysia Berhad (PMB). This would allow PMB to take full control of MAS’ fleet so as to allow the carrier to focus its attention on airline operations.

PMB was set up in 2002 and is wholly-owned by the country’s finance ministry and managed by Khazanah.

“The plan is for MAS’ fleet to be transferred to PMB, and for PMB to lease it back to the airline at a preferential rate compared with what they are paying all the third party lessors now,” says Shukor.

Jentayu feels that this move would help MAS position itself for ASEAN open skies.

“The current restructuring plan doesn’t address that. We think that a smaller MAS will not be in any position to compete against SIA and Garuda… our idea is not to grow smaller, which is what Khazanah is saying, but to grow the airline… to have more planes, not a smaller fleet,” says Shukor.

He stressed however that Jentayu wants to work together with Khazanah, which has proposed a 12-point restructuring plan to turn MAS around.

“We could work together with Khazanah, who wants to make it from an old company to a new company. We could take over PMB, assume control of the fleet and free up cash flow for MAS using the fleet that is owned by PMB. When MAS has no obligations toward finance charges or borrowings from the debt market, they can focus all attention on becoming a full scale premium airline,” he says.

Part of Jentayu's plan is also to take over MAS' maintenance repair and overhaul business as well as its Firefly unit.

Flightglobal's Ascend Fleets database shows MAS as operating 120 aircraft, of which 24 (mainly Boeing 737-400s) are in storage. MAS owns 26 aircraft directly- three A330-200s, five A330-300s, 13 737-800s, and five 777-200ERs - and PMB owns 21 - three 777-200ERS, one A330-300, 14 737-400s, and three 747-400s. The balance are owned by other parties.

Jentayu is confident that with its new proposal, MAS can be turned around for less than MYR6 billion ($1.8 billion), the amount Khazanah has said it would pump into the carrier over a three-year period. It adds that funding for its stake in PMB will come from various sources including banks, financial institutions and individuals.

“Khazanah wants to put another MYR6 billion of taxpayers' money into an airline they have failed to restructure for the last decade or so. What comfort do I get from a group of people who have tried it two to three times but not managed it?” says Shukor. “So we have what I think is a doable idea on how to move MAS forward.”

If Jentayu's proposal is accepted, PMB will first focus on "saving MAS." Later it will become a full-fledged leasing company that will also serve other airlines.

Key to Khazanah’s restructuring plan for the ailing carrier is to transition to a new holding company structure, which will operate with 30% fewer staff and refocus the network on regional services. MAS reported a MYR303 million loss for the quarter ended 30 June, following the mysterious disappearance of flight MH370 in March. The shooting down of flight MH17 over eastern Ukraine in July has compounded the airline’s struggles.